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Bottom Line Up Front

  • Tax refunds are a chance to put money away toward goals like retirement accounts, home improvements and improving personal finances. 
  • You can also make the most of a tax refund by paying down credit cards or other debts.

Time to Read

3 minutes

May 1, 2022

Each year, more than 70 percent of U.S. taxpayers receive a tax refund, at an average of $2,851, according to the IRS. A refund might seem like extra fun money from Uncle Sam, but remember—it’s your money. You might be tempted to treat it like a mini-lottery win and splurge, but there are smarter ways to use this extra money.

Pay Off Debt

Credit card debt, student loans and other payments can strain your budget. Using your refund to pay off or pay down debt will lighten the load. 

Start or Strengthen an Emergency Fund

You can’t predict life’s interruptions, like a job loss, medical emergency or sudden repairs, but you can prepare financially for unexpected expenses. Create a safety net for yourself by starting or adding to your emergency fund. Are you interested in saving without increasing your payments? Each time you pay off a bill, pay yourself the amount you would have put toward that bill by transferring the payment amount to your savings or money market account.

Contribute to Retirement Savings

Looking forward to a comfortable retirement? Your refund may grow tax-free or tax-deferred if you put it into a Roth or traditional IRA. You can contribute up to $6,000 (or up to $7,000 if you’re 50 or older) to a traditional IRA annually. Roth contribution limits are based on your income. Don’t have an IRA? It’s a great investment toward a secure retirement.

Save for College

Contributing your refund to a 529 plan is an investment in a child’s future, and earnings on the investment are free from federal taxes. There are no income or age limits. Annual contribution limits depend on your state. According to research, in 2022 they range from $235,000 to $550,000. These can change, so make sure you check your state's plan.

Put Money Aside for a Home

If you don’t own a home but plan to someday, this is your opportunity to save toward that goal. Open a separate savings account or certificate and start putting aside money for a down payment.

Start a Short-term Savings Account

Want to splurge on something special, but need to save more to hit your goal? Consider a short-term savings account like Navy Federal’s SaveFirst Account. With the money safely tucked away in a savings account, you can avoid the temptation to spend it. Although saving money may not have the same immediate appeal as a big splurge, if you build a solid financial foundation now, you can afford to splurge more later.  

Start Investing

Investing can help you reach big life goals, like buying a home, starting a business or building a retirement fund. You can get started for surprisingly little money. Navy Federal Investment Services Digital Investor is an affordable online investment tool for do-it-yourself investors. You can use their already diversified portfolios or mix it up with your own choices. So, even if you have no experience, you can get started and learn as you go.  

Whether you're saving for the short or long term, Navy Federal offers a variety of savings in last paragraph, certificates and investment financial products to help you meet your goals


Next Steps Next Steps

  1. Review your overall finances. Do you have an emergency fund in place? If not, aim to save at least $500 for unexpected expenses.  
  2. Next, take a look at your debt. Do you have any from high-interest credit cards you’d like to lower the balance on? For assistance in debt repayment, check out this video on ways to lower you balance.
  3. Our team of Personal Finance Counselors are also here to help you set saving goals, budget and get back on track. 


This content is intended to provide general information and shouldn't be considered legal, tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.